C (3:45)

Right.

A (3:45)

And we've definitely seen some bumps recently. But I think on your point around sort of yields, Chitanya, I think that policy backdrop really ties directly to your idea of the age of capped real rates. In very simple terms, can you explain what that means and what's behind that view?

C (4:03)

Sure. When I say age of real rates being capped, I mean like the structural template within which I'm operating and real rates here defined by the tenure on the treasury yield adjusted for cpi. Firstly, I'd say there was too much linear thinking in markets post Liberation Day that tariffs equals inflation equals higher rates. Now tariff impacts as we have seen, can be offset in several ways and economic relationships are rarely linear. So inflation may not go up to the extent market is expecting. So that supports the case for capped rates. And the real constraint is the debt arithmetic. Right. So if you look at the history of public debt in the us whenever there was a surge in public debt during the Civil War, two World wars, global financial crisis, even during COVID in all these periods when debt spike, real rates have remained negative. So there can be short term swings in rates. But I believe that markets, not necessarily central banks, will even enforce that gap.

A (5:18)

You've described this moment as the great broadening of 2026. What's driving this and what do you think it's happening now after years of very narrow concentration?

C (5:29)

Yes, I think like if last decade was about concentration, now it's going to be about breadth. And if you look at where the concentration was, it was in the Mega seven in the AI trade, we are beginning to see some cracks in the consensus where adoption is happening. But monetization is laggin but clearly the next phase of value creation could happen from just the model building to the application layer. As you guys have also talked about, from enablers to adopters. The other thing we are seeing is two AI ecosystems evolve globally. The high cost cutting edge US innovation engine and the lower cost efficiency driven Chinese model. Each of them have their own supply chain beneficiaries and as AI is moving into physical world, you're going to see more opportunities. And then secondly, I think there are limitations on this tariff policies globally and tariff fears to me remain more of an illusion than a reality because US needs to import a lot of intermediate goods. And then lastly, I see domestic cycles inflecting upwards in many other pockets of the world. And if you add all this up, the message is clear that leadership is broadening and portfolios should broaden too.

A (6:55)

And I still want to sort of stay on this topic of broadening. So Andrew, I think you've also highlighted this market broadening, especially beyond the large cap leaders, even as AI investment continues, I think, as touched on earlier. So why does that matter for Equity leadership in 2026? And can you talk about the impact of this broadening on valuations in general?

B (7:20)

Sure. So I think, you know, I've been around a long time and I remember when the Internet first rolled out. The Mosaic browser was introduced in 1993 and the first thing the stock market tried to do is appoint winners of who was going to win the Internet, you know, search race and it was Ask Jeeves and it was Yahoo and it was Netscape. Well, none of those were the winners. We just don't know who's ultimately going to be the tech winner. And I think it's much safer to know that just like the Internet, AI is a technology productivity enhancing tool. And companies are going to embrace AI just like they embrace the Internet. And the reason the stock market doubled between 1997 and the dot com peak was that productivity and margins went up for a lot of companies in a lot of industries as they embraced the Internet. So to me, a broadening out and looking at lower valuations, it is in many ways safer than saying this is the technology winner and this is technology loser. I think it's all many different industries are going to embrace and benefit from what's going on with AI.

A (8:43)

You don't want to know where I was in 1993 and I don't recognize most of those names.

B (8:46)

Sorry, I was 14.

A (8:49)

Okay. Investors often hear two competing messages. Ignore the macro and buy great companies or let the big picture drive everything. How do you balance top down signals with bottom up fundamentals in your investment process?

B (9:06)

Yeah, I think you have to employ both and I hear that all the time, especially I hear my competitors. Oh, I just focus on my stock picks, my bottom up. But you know, look, statistically two thirds of a manager's relative performance comes from macro. How did growth do, how did value do? All those types of things that have nothing to do with what stock picks. And likewise much of a return of an individual stock has to do with things beyond just what's happening fundamentally, but some of it comes from what's happening at the company level. So I think to be a great investor you have to be aware of the macro. The Fed cutting rates this year is a very powerful tool and if you don't understand the implications of that as per what types of stocks work, because you're so focused on the micro, I think that's a mistake. Likewise, you have to know what's going on in your company because 1/3 of the return does come from actual stock selection. So I'm a big believer in marrying a top down and a bottoms up and try to capture the 2/3 and the 1/3.

A (10:15)

Since that 2022 bear market low that you talked about earlier, your framework really favored growth and value over defensives. But I think more recently you've increased your non US exposure. What changed in your top down signals and bottom up data to make global opportunities more compelling now? Is it like the narrative of the end of US exceptionalism or something else?

B (10:41)

No, I really think it's actually something else which is we have picked up signals from other parts of the world, Europe and Japan, that are different signals than we saw really for the last decade, which is namely that pro cyclical stocks started to work. Value stocks started to work in the first half of 2025. And you look at the history of of when that happens, usually value doesn't work for a year and peter out. So that's been a huge change where I would say a safer orientation has shown the relative leadership and we have to be recognized that. So in our global strategies we've been heavily weighted towards the US orientation because we didn't see really a cyclical bias outside. And now that's changing and that has caused us to influence increase the allocation to non US exposure. It's a long winded way of saying, look, I think what the story of last year was the US did just fine, but there were parts of the world that did better and I think that will continue in 2026.

A (11:56)

So Shatania, I think with that in mind, where do you see the biggest investment opportunities in 2026 outside the U.S. yeah.

C (12:05)

So I break it down between the U.S. and the Acwex U.S. which is the all country world index, the market configuration. Right. If tech and tech related names are like 40% of the US in the acquies US universe it's industrials and financials which are 40% of that index. Right. So similar to what Andrew said, there is a cyclical stage in different countries. Europe, different pockets look very interesting both in core, in periphery and also in the emerging Europe overall emerging markets. They've clearly restored fiscal and monetary credibility in this cycle. So there is like a structural positive story within that complex. Again, it's a heterogeneous asset class. So you have the new China with the manufacturing and technology pivot and the AI ecosystem that I talked about. The North Asian markets which are in the supply chain of both US and China. Some of the sectors in Korea, like defense, biotech, shipbuilding are interesting opportunities because they are vendors to us. India is a structural market we've talked about all the time. And Latin America with, you know, Trump's relatively positive stance on the region, good fiscal monetary management by central banks. So lots of opportunities scattered all over the world at this stage of the economic cycle and their market cycle.

A (13:43)

Andrea Jatania, thank you so much for taking the time to talk.

B (13:46)

Great speaking with you, Serena.

C (13:48)

Thanks for having us on the show.

A (13:50)

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